Blockchaining the Future? Streamlining the Supply Chain in the Maritime Industry

By Rory Hopcraft 

In February 2017, commodity traders Mercuria used a prototype trading platform based on blockchain technology to improve both the associated costs and efficiency of oil transactions. A blockchain is a database that is used to store digital assets or transactions within, it is then replicated and shared across a network.  There is now wider interest from the maritime industry in the potential uses of this technology to streamline the maritime transactional processes.

Container

Digital containers: is this the future for the maritime industry? Author’s own.

The Benefits of a Blockchain

A blockchain has three main characteristics that lend itself to improving transactions.  It is distributed, immutable and permissioned.  As the information within a blockchain is duplicated throughout a network it is not stored in a centralized location, which allows anyone to access an up-to-date version of the information (distributed).  The information is protected as old blocks cannot be tampered or altered, and new blocks of information must be verified by consensus of other members in the network before it is appended to the previous block (immutable).  Which, in the maritime example as it uses a private blockchain, can only be done by those within a set network that have the correct read/write approval (permissions).  This creates a tamper-proof and time-stamped digital paper record of the origin and journey of all the transactional documents.

For the maritime industry, the cost and efficiency benefits of blockchain technology is noticeable in the context of cargo management, as safe and secure transportation of cargo requires considerable logistical and administrative investments.  In the case of paperwork, these include Bills of Lading, Letters of Indemnity and Charters.  To complicate matters, some cargoes, like oil, can be sold multiple times in rapid concession during short voyages, this was the main driver behind Mercuria adopting a blockchain-based platform.  The final paperwork must be signed and approved by a multitude of entities within the transaction before the cargo can be discharged, thus meaning it must be couriered between these entities, which is both time-consuming and expensive.

If we now consider a shipping agent/company like Maersk, who owns 247 vessels with a total capacity of 3.56 million containers, there is the potential for multiple inefficiencies.  With the adpption of blockchain technology it could create a more efficient and secure platform for transactional demands.

Blockchains would also help replace the typical transactional paper documents with digital forms.  By allowing IoT (Internet of Things) port infrastructures to automatically update cargo information it would also allow for the tracking of containers from boat to stack, or verifying the weight of goods during discharge.  Results from tests run by maritime technology company Marine Transport International envisage cost savings as high as 90%.

Document_Graphic

Illustrating the Complex Access Requirements of Transactional Documents. Author’s own.

Increased Document Security

The characteristics of blockchains that make them attractive as an efficient platform for the transactional process lend themselves to reduce the instances of criminal or terrorist activity.  SKULD highlight two examples of document fraud for criminal gain that blockchains could inhibit: Forged Bills of Lading and the “Trojan” Container.

In the first instance, an attacker creates a fake set of Bills of Lading (acknowledgement of receipt of cargo) to allow the discharge of cargo in advance of the intended receiver.  To create these ‘documents’, it requires specific “insider” knowledge of the cargo.  Blockchains are able to limit viewing rights to specific documents within the transaction to the multiple entities that require it, while creating a log every time a document is viewed and by whom.  The digital verification of paperwork would mitigate against the acceptance of forged Bill of Lading by local shipping agents.

In the second scenario, the spectre of the “Trojan” container is becoming more common as vessels are able to carry a far greater number per voyage than ever before.  The Maersk Triple E class can carry over 18,000 containers.  With the turnaround times in ports kept to a minimum (between 0.5-2.0 days) in order to reduce downtime of vessels, it is impossible to rigorously check the manifests and contents of all containers.  Therefore, containers carrying cargo different to that of the official documentation is a genuine possibility.  By incorporating a blockchain system into the customs processes would reduce the required time for the verification of documents to occur.

In both of these examples there is potential for terrorist groups to utilise these attacks.  By being able to hide cargo in containers and circumvent the port security, it can allow the movement and trade of weaponry or explosive materials.  There have been cases at the discharge of LPG tankers where some fuel is retained within the tanks.  This is then sold by the crew illegally to the highest bidder, with the money then being used to fund terrorist activity in the region.  Furthermore, if a terrorist gained access to the Bills of Lading for a voyage, using the freely accessible vessel Automatic Identification System (AIS), they would be able to target specific vessels for their bounty.  This was highlighted by the rise in successful Somalian piracy attacks in 2008 which targeted specific flagged vessels as these could be ransomed for a higher price.

Challenges Facing the Maritime Blockchain

There are challenges to utilising blockchain technology in the maritime industry.  Post 9/11 the revised Kyoto Convention on the Simplification and Harmonization of Customs Procedures insists on the integration of electronic process to facilitate the customs clearance processes.  Blockchain technology facilitates this aim, however, by allowing IoT port infrastructure devices to input into the blockchain, there are potentialities for an attacker to manipulate the transactional system.  As seen in 2013, a drug syndicate employed hackers to track and alter locations of containers at the Port of Antwerp to facilitate drug smuggling.  This highlighted that human oversight will remain critical in order to verify the accuracy of inputs and continued compliance to the Kyoto Convention.

There is also an interest in the possibility of implementing smart contracts, which would allow the automation of parts of the transactional cycle, including the ability to issue a refund if cargo verification fails.  Currently within transactional documents there are a wide range of clauses, including force majeure (unforeseen circumstances affecting charter) or demurrage (failure to meet contractual agreements). This makes it difficult to build these into an automated system as insurers rely on their claim adjusters to make a fair assessment of the facts pertaining to the loss.  An automated database would not be able to account for the ramifications of breaches due to the type of transaction, the vessel classification and the route for example.

The Future of Maritime Blockchains?

The future of a maritime blockchain, whether this is a simple streamlining of the transactional process, or a more complete automated system, looks to be here to stay.  Mercuria are now working with banks and governments across multiple jurisdictions, pushing for the standardisation of their blockchain platform.  If successful it could lead to the reduction in the physical paperwork required per transaction in turn reducing overall costs and improving efficiency.  A trading platform based on blockchain technology could create an auditable and tamperproof paper trail which in turn improve overall confidence in the transactional security – and it is hoped reduce the scope for criminal and terroristic activity.


Rory is a alumnus of the MSc in Geopolitics and Security and is now part of Royal Holloway’s Centre for Doctoral Training in Cyber Security. His research interests are in the regulation and control of maritime cyber security. You can find him on Twitter:

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